The European Commission has published a Green Paper
on Consumer Collective Redress on how to facilitate redress in situations where
large numbers of consumers have been harmed by a single trader's practice which
is in breach of consumer law. Violations of consumer rules could include
overcharging consumers - through hidden charges or overbilling - misleading
advertising on websites, or failing to provide compulsory information on
financial products. These kinds of illegal practices, if they occur to a large
number of consumers, can cause considerable damage to consumers, generate unfair
competition and distort markets. The Green Paper identifies barriers to
effective consumer redress in terms of access, effectiveness and affordability
and presents various options to close the gaps identified. The options set out
in the Green Paper seek to ensure that consumers who are victims of illegal
commercial practices can get compensated for their losses, while avoiding
unfounded claims. Comments on the Green Paper can be submitted until 1 March
2009.

EU Consumer Commissioner Meglena Kuneva said: “Consumers who are
victims of illegal activities, such as overcharging, misleading advertising or
outright scams, have a right to compensation. Currently, particularly where
there are small scattered claims, this right is often theoretical because of the
obstacles to exercising it in practice. There is a justice gap, a welfare gap
and there are black holes in our redress system that is leaving consumers with
nowhere to go. The present situation is clearly unsatisfactory. We must find a
way to make the basic right to consumer redress a reality for more people."

The current situation

As mass consumer markets expand in size and even become cross- border, very
large numbers of consumers can be harmed by the same or a similar practice of a
trader. The effect of a malpractice can be so widespread as to distort markets.
For example, UK banks are under investigation for having systematically imposed
excessive charges on hundreds of thousands of consumers whose accounts became
overdrawn[1]. A group of consumers in
Portugal took action against a telecom company which had charged its 3 million
clients a 'start up fee'. Following their joint complaint, the Lisbon Court
ruled that the charge was illegal and had to be refunded to the clients. The
compensation awarded to consumers has been in the order of 70 million Euros.

The problem

Consumers can always go to court to obtain individual redress. Mass claims
could then in principle be resolved with a large number of individual claims.
However, studies carried out by the Commission indicate that currently when
consumers affected by a malpractice want to pursue a case, they face substantial
barriers[2] in terms of access,
effectiveness and affordability.

Since, where it exists, collective redress can potentially provide a useful
complementary means of reducing consumer detriment, the Green Paper focuses on
collective redress as a tool that could help solve the problems that consumers
face in obtaining redress for mass claims both in national and cross-border
contexts. 76% of consumers would be more willing to defend their rights in
court if they could join together with other consumers.

Strengthening the ability of consumers to access effective redress has
several advantages:

it ensures that consumers harmed by illegal commercial malpractice are
compensated for their losses;

it enhances the overall level of respect for EU law by discouraging
companies from engaging in illegal activities which give them an unfair
competitive advantage against other operators;

In the Green
Paper several options are put forward for debate. (1) no immediate action, (2)
co-operation between Member States extending national collective redress systems
to consumers from other Member States without a collective redress mechanism,
(3) a mix of policy instruments to strengthen consumer redress (including
collective consumer alternative dispute mechanisms, a power for national
enforcement authorities to request traders to compensate consumers and extending
small claims to deal with mass claims), (4) binding or non binding measures for
a collective redress judicial procedure to exist in all Member States. A
combination of different elements from these options is also open to
consideration.

Background

Studies and surveys conducted for the Commission indicate that obstacles for
consumers, including particularly high costs, risk of litigation, complex and
lengthy procedures, mean that, one out of five European consumers will not go
to court to seek redress for claims less than 1000 Euros. Half say they will not
go to court to seek redress for less than 200 Euros. Only 13 Member States
currently have in place different national systems providing the possibility of
collective redress for consumers. The evidence is that these national mechanisms
have only been applied in a few cases in recent years. For example, only four in
ten million people every year have participated in redress actions in Germany,
while the collective redress scheme in Portugal reached the most people in a
single case.